Changes For Paying Tipped Workers Take Effect Next Month

The income of tipped-workers has been a topic of interest since the beginning of this year. With regulation changes coming to these employees, the Pennsylvania Department of Labor and Industry wanted to ensure that both employers and workers understand these changes.

In an official release, the Pennsylvania Department of Labor & Industry (L&I) Secretary, Jennifer Berrier, encouraged Pennsylvania employers and workers to register for one of the department’s webinars on updated Minimum Wage Act regulations that will go into effect August 5.

Approved by the Independent Regulatory Review Commission and Attorney General Josh Shapiro earlier this year, the final-form regulation will update how employers pay tipped workers and ensure that salaried employees with fluctuating schedules are appropriately compensated for overtime.

“The world of work has changed significantly since these regulations went into effect in 1977, but tipped workers remain a sizeable and critical segment of Pennsylvania’s workforce. They are the only workers whose take-home pay ultimately depends on the generosity of their customers and not the obligation of their employer. This update to the Minimum Wage Act regulations aims to protect tipped workers in the 21st century and ensure consistency for employers,” Berrier said.

Employers and other stakeholders with questions about the updated regulations are encouraged to visit the department’s website or participate in the upcoming webinar session on Tuesday, July 19, 2022, from 10 am to 11:30 am (register here).

The final-form regulation includes five primary areas for tipped workers:

  1. An update to the definition of “tipped employee,” adjusted for inflation since 1977, that increases the amount of money in tips an employee must receive monthly from $30 to $135 before an employer can reduce an employee’s hourly wage from $7.25 per hour to as low as $2.83 per hour.
  2. Alignment with new federal regulations codifying long-standing policies that govern employer tip credits to allow employers to take a tip credit under certain conditions, including that the employee spends at least 80 percent of their time on duties that directly generate tips, commonly known as the 80/20 rule.
  3. Alignment with updated federal regulations that allow for tip pooling among employees but in most cases excluding managers, supervisors, and business owners.
  4. A prohibition on employers deducting credit card and other non-cash payment processing transaction fees from an employee’s tip included with a credit card payment or other non-cash methods of payment.
  5. A requirement for employers to clarify that automatic service charges are not gratuities for tipped employees.

In addition, the final-form regulation updates the definition of “regular rate” for salaried employees whose overtime pay is determined by the fluctuating workweek method, clarifying that the regular rate is based on a 40-hour work week when calculating overtime.